BoE Governor Andrew Bailey said in a statement that it’s “monitoring developments in financial markets very closely in light of the significant repricing of financial assets.
He pointed to the UK government’s Growth Plan announced on Friday and he “welcome the Government’s commitment to sustainable economic growth”.
The MPC will make a full assessment “at its next scheduled meeting” of the impact of the plan on demand and inflation, and the fall in Sterling, and “act” accordingly.
Boston Fed President Susan Collins said, “I do anticipate that accomplishing price stability will require slower employment growth and a somewhat higher unemployment rate.” But she added that “the goal of a more modest slowdown, while challenging, is achievable.”
“A significant economic or geopolitical event could push our economy into a recession as policy tightens further,” she warned. “Moreover, calibrating policy in these circumstances will be complicated by the fact that some effects of monetary policy work with a lag.”
In the hearing of a European Parliament committee, ECB President Christine Lagarde said, “most measures of longer-term inflation expectations currently stand at around two per cent. However, signs of recent above-target revisions to some indicators warrant continued monitoring.”
“The risks to the inflation outlook are primarily on the upside, mainly reflecting the possibility of further major disruptions in energy supplies,” she said. “While these risk factors are the same for growth, their effect would be the opposite: they would increase inflation but reduce growth.”
“We expect to raise interest rates further over the next several meetings to dampen demand and guard against the risk of a persistent upward shift in inflation expectations… Our future policy rate decisions will continue to be data-dependent and follow a meeting-by-meeting approach,” she said.
Germany Ifo Business Climate dropped from 88.6 to 84.3 in September, below expectation of 87.1. That’s the lowest level since May 2020. Current Assessment index dropped form 97.5 to 94.5, below expectation of 96.0. Expectations index dropped from 80.3 to 75.2, below expectation of 78.6.
Ifo said: “Companies assessed their current business as clearly worse. Pessimism regarding the coming months has grown decidedly; in retail, expectations have fallen to a record low. The German economy is slipping into recession.”
By sector, manufacturing dropped from -6.8 to -14.2. Services dropped from 1.4 to -8.9. Trade dropped from -25.8 to -32.3. Construction dropped from -14.8 to -21.6.
ECB Vice President Luis de Guindos said in a conference today, “we are seeing that in the third and fourth quarters there is a significant slowdown and we may find ourselves with growth rates close to zero.” He also noted that inflation in becoming increasingly broad and further rate hike will depend on incoming data.
Separately, Governing Council member Boris Vujcic said this months’ 75bps hike was “the right way to go”. “Inflation, if it’s persistently strong, has to be the clearly dominant goal,” he added. “Paying much attention to lower growth now, at the expense of fighting inflation, is often luring. But letting inflation become entrenched always has a higher cost than a temporary decline in GDP.”
BoJ Governor Haruhiko Kuroda said today that rapid currency moves were undesirable as they would have a negative impact on the economy. He added that intervention to address exchange volatility was the appropriate move.
Also, he pledged in a speech that BoJ will “continue with monetary easing so as to firmly support Japan’s economy from wage increases.”
Kuroda also noted, it’s “highly likely” for the economy to continue recovering following three factors. The first is improvement in exports, production, and business fixed investment. The second factor is solid private consumption. he third factor is that, with the government relaxing entry restrictions, inbound tourism demand is expected to recover. But he also pointed out risks from COVID-19, and developments in overseas economic activity and prices.
Japanese Finance Minister Shunichi Suzuki reiterated that the government is “strongly concerned” about one-sided, rapid yen moves.
“We took appropriate action against excessive volatility driven by speculators. The intervention has had a certain effect,” he said, referring to last week’s intervention to support Yen. “There is no change in our stance that we will take (further) action if needed.”
“Governor Kuroda expressed Thursday in his remarks his strong concerns about the rapid depreciation of the yen. We have a shared view on this with the BOJ,” Suzuki added.
Former top currency diplomat Naoyuki Shinohara, however, said, “it’s unlikely Japan will continue intervening to defend a certain line, such as 145 yen to the dollar… It’s impossible to reverse the market’s broad trend with intervention alone.” Shinohara oversaw Japan’s currency policy during the global financial crisis in 2008.
Japan PMI Manufacturing dropped slightly from 51.5 to 51.0 in September, below expectation of 51.1. That’s the lowest reading since January 2021. Manufacturing Output Index dropped from 49.2 to 48.9. PMI Services, on the other hand, rose from 49.5 to 51.9. PMI Composite rose from 49.4 to 50.9.
Joe Hayes, Senior Economist at S&P Global Market Intelligence, said: “Business are reporting concerns around the economic outlook amid steep cost pressures and the rising likelihood of a global economic downturn. The remarkable weakness we’ve seen in the year-to-date in the yen continues to push up price pressures, with companies struggling to fully pass on these higher costs burdens to clients. Subsequently business confidence slumped to a 13-month low”.
Atlanta Federal Reserve President Raphael Bostic said on CBS’s “Face the Nation” program, “Inflation is high. It is too high. And we need to do all we can to make it come down.”
He added the US need to have a “slowdown”, but “we are going to do all that we can at the Federal Reserve to avoid deep, deep pain.”
“We’re still creating lots of jobs on a monthly basis, and so I actually think that there is some ability for the economy to absorb our actions and slow in a relatively orderly way,” he said.
Canada retail sales dropped -2.5% mom to CAD 61.3B in July, worse than expectation of -2.0% mom. That’s also the first decline in seven months. Sales were down in 9 of 11 subsectors, representing 94.5% of retail trade. The contraction was driven by lower sales at gasoline stations and clothing and clothing accessories stores. Excluding gasoline, and motor vehicle and parts, sales dropped -0.9%.
Based on advance estimate, sales recovered by rising 0.4% mom in August.
UK PMI manufacturing improved from 47.3 to 48.5 in September. But PMI services dropped from 50.9 to 49.2, a 20-month low. PMI Composite dropped from 49.6 to 48.4, a 20-month low.
Chris Williamson, Chief Business Economist at S&P Global Market Intelligence said:
“UK economic woes deepened in September as falling business activity indicates that the economy is likely in recession. Companies report that the rising cost of living, linked to the energy crisis, and growing concerns about the outlook are subduing demand and hitting output levels to an extent not seen since 2009, barring the pandemic lockdowns and initial 2016 Brexit referendum shock.
“Forward-looking indicators meanwhile deteriorated further in September. Both the new orders and future expectations gauges have descended to levels which have rarely been weaker in the past, and are consistent with a deepening downturn as we head into the fourth quarter.
“Inflationary pressures continue to run higher than at any time in over two decades of survey history prior to the pandemic. Renewed supply constraints, soaring energy prices and rising import costs associated with the weakened pound are adding to cost pressures, meaning the overall rate of inflation signalled will remain of great concern to policymakers at the Bank of England. However, the detrimental impact of tightening policy into a recession is becoming increasingly apparent, with the downturn likely to intensify as we head into winter.”
Eurozone PMI manufacturing dropped from 49.6 to 48.5 in September, a 27-month low. PMI services dropped form 49.8 to 48.9, a 19-month low. PMI composite dropped from 48.9 to 48.2, a 20-month low.
Chris Williamson, Chief Business Economist at S&P Global Market Intelligence said: “A eurozone recession is on the cards as companies report worsening business conditions and intensifying price pressures linked to soaring energy costs.
“The early PMI readings indicate an economic contraction of 0.1% in the third quarter, with the rate of decline having accelerated through the three months to September to signal the worst economic performance since 2013, excluding pandemic lockdown months.”
Germany PMI Manufacturing dropped from 48.3 to 49.1 in September, a 27-month low. PMI Services dropped from 47.7 to 45.4, a 28-month low. PMI Composite dropped from 46.9 to 45.9, a 28-month low.
Phil Smith, Economics Associate Director at S&P Global Market Intelligence said:
“The German economy looks set to contract in the third quarter, and with PMI showing the downturn gathering in September and the survey’s forward-looking indicators also deteriorating, the prospects for the fourth quarter are not looking good either.
“The deepening decline in business activity in September was led by the service sector, which has seen demand weaken rapidly as customers pull back on spending due tightening budgets and heightened uncertainty about the outlook.
“Whilst constraints on manufacturing output from material shortages looked to have eased somewhat, resulting in a shallower decline production levels in September, goods producers like their service sector counterparts have nevertheless grown increasingly concerned about activity in the coming months, with the energy crisis stoking recession fears.
“Just when it looked like underlying inflationary pressures might be easing, a fresh surge in energy prices has seen business input costs rise at a faster rate for the first time in five months, in turn leading to a renewed acceleration in average prices charged for goods and services.”
France PMI Manufacturing dropped from 50.6 to 47.8 in August, a 28-month low. PMI Services improved from 51.2 to 53.0. Overall, PMI Composite rose from 50.4 to 51.2.
Joe Hayes, Senior Economist at S&P Global Market Intelligence said:
“The upward movement in the Composite Output PMI should not take away from the clear message seen across the survey as a whole – the French economy is struggling. Weakness is its most striking in the manufacturing sector, where the downturn accelerated in September as overstocked warehouses, rapidly deteriorating demand for goods, heightened economic uncertainty and intense price pressures drove production volumes lower.
“Another worrying find from the latest survey was the pick-up in inflationary pressures, despite more evidence that supply stress is fading. According to surveyed firms, this reflected higher energy tariffs and wage bills. Energy security is a principal concern of companies as we head into the colder months across Europe.
“The overall improvement in September was services-driven as a renewed increase in new business supported a slight pick-up in activity growth. Nevertheless, trends in output and new orders on the services side were still subdued by historical standards. Given the large degree of weakness we’re seeing in the manufacturing sector, it’s likely that we’ll see some of this spill over into services, thereby raising the risk of a recession in France.”
Australia PMI Manufacturing ticked up from 53.8 to 53.9 in September. PI Services also rose slightly from 50.2 to 50.4. PMI Composite Output rose from 50.2 to 50.8.
Laura Denman, Economist at S&P Global Market Intelligence said: “September data indicated that the recent interest rate hikes made by the RBA have begun to have the desired effect in terms of prices…. At the same time, the private sector has remained in expansion territory with the pace of growth even accelerating very slightly…
“On the negative side, the full effects of recent interest rate hikes will be lagged… Should the RBA continue to increase the base rate further, the private sector economy may be at risk of heading into contraction territory in the future as disposable incomes across the nation tighten and overall demand conditions remain subdued.”
UK Gfk consumer confidence dropped further from -44 to -49 in September, hitting another record low since 1974. Personal financial situation over next 12 months dropped -9 pts to -40. General economic situation over next 12 months dropped -8 pts to -68. Major purchase index was unchanged at -38.
“Consumers are buckling under the pressure of the UK’s growing cost-of-living crisis driven by rapidly rising food prices, domestic fuel bills and mortgage payments. They are asking themselves when and how the situation will improve.” Joe Staton, client strategy director at GfK, said.
ECB Executive Board member Isabel Schnabel said yesterday in Luxembourg, “What we are seeing is that the inflationary pressures have become much more broad-based. They have somehow crept into all parts of the economy.”
“At the moment, we are not in a situation where the normalization of monetary policy harms the economy,” she said. “It’s more like we have to remove the accommodation that we still have in the system.”
US initial jobless claims rose 5k to 213k in the week ending September 17, below expectation of 220k. Four-week moving average of initial claims dropped -6k to 217k.
Continuing claims dropped -22k to 1379k in the week ending September 10. Four-week moving average of continuing claims dropped -8k to 1405k.
BoE raises Bank rate by 50bps to 2.25% as widely expected. The voting was not unanimous, with five MPC members Andrew Bailey, Ben Broadbent, Jon Cunliffe, Huw Pill, and Silvana Tenreyro, voted for the decisions. Three members, Jonathan Haskel, Catherine L Mann and Dave Ramsden voted for 75bps hike. One member, Swati Dhingra, voted or 25bps hike.
The Committee voted unanimous to reduce the stock of purchased government bonds by GBP 80B over the next 12 months, to a total of GBP 758B, as set out in August meeting minutes.
BoE also said that the MPC will consider and make decision on the Bank Rate “at each meeting”. The scale, pace and timing of any further changes will reflect the assessment of economic outlook and inflationary pressures. It maintain the pledge to “respond forcefully” if outlook suggests “more persistent inflation pressures”.
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Fed Bostic: UK growth plan adds uncertainty to the economy
Atlanta Fed President Raphael Bostic said market reaction to UK government’s new growth plan, with sharp volatility in Sterling, was a “real concern”. There’s “a fear that the new actions will add uncertainty to the economy.”
The key question will be what does this mean for ultimately weakening the European economy, which is an important consideration for how the U.S. economy is going to perform,” he added.
But for now, Bostic gave no indication on how Fed could respond to the development in the UK. “The more important thing is that we need to get inflation under control,” he said. “Until that happens, we’re going to see I think a lot of volatility in the marketplace in all directions.”